The Nobel Prize Committee pays attention to governance of the commons

The Nobel Prize in Economic Sciences is being shared this year by Elinor Ostrom, a political economist at Indiana University, and Oliver Williamson, an economist at UC Berkeley. The award could not be more appropriate in these times of rethinking what markets can and cannot do.

The award to Ostrom, who has spent her professional life studying how societies manage common resources is particularly relevant as we draw closer to the Copenhagen summit and countries are busy defining what they are willing to do to protect the global atmospheric commons.

In fact, Ostrom wrote a background paper for us earlier this year for the World Development Report 2010: Development and Climate Change. In it, she took exception to the notion that a solution to global change must be global. Such a solution would take too long, she argued. She also reminded us that a solution negotiated at the global level, if not backed up by a variety of efforts at the national, regional, and local levels, was not guaranteed to work well. This is because climate change is the result of many individual and local decisions.

Ostrom argues against the conventional theory of collective action (no one will change behavior in the absence of an external authority with the capacity to enforce, monitor and sanction) on two grounds.

First, there is limited empirical support for the conventional theory, with lots of successful examples (at the small and medium scale) of successful collective actions to protect forests, fisheries and other common pools. As she says, “a surprisingly large number of individuals facing collective action problems do cooperate.” Second, many local benefits are generated by reducing emissions. So local decisions generate local effects (good and bad), as well as influence global warming.

However, as Ostrom acknowledges in her interview with Adam Smith (no, really – he is the editor-in-chief of http://nobelprize.org) on the official Nobel site: “There are many settings that discourage self-organization.” She notes that cooperation tends to occur in settings with several broad characteristics:

Many of those affected have agreed on the need to change and see themselves as sharing responsibility for future outcomes

The reliability and frequency of information about the matter of concern is relatively high

Participants know who else has agreed to change behavior and that behavior is being monitored

Communication occurs among at least subsets of participants

None of these conditions seem out of reach… Let us hope that the negotiations will help produce the right kind of setting for cooperative action. As Professor Ostrom reminds us again this week: “Humans have great capabilities.”

Comments

While there are certainly examples of the power of collective action at the local level to protect shared resources (like in Plachimada India where communities effectively protested the presence of a major Coca-Cola plant that was depleting groundwater supplies, and causing major pollution to surrounding areas), there are many cases where local efforts to protect the commons have been trampled on by powerful multinational corporations. How do we create a shift in the thinking of such corporations that often presume that everything can be commodified, privatized, or exploited?

If we are to make an impact on our ecological foot print and determine if we are developing sustainably, I believe we need to change the way we evaluate the economics of our development projects.
For example when we look at resource development, we traditionally take into account the costs to extract the resource,the processing costs, the manafacturing costs, the transportation cost and the cost to deliver the resource to the consumer. The analysis of the revenue and the costs (ie the cash flow) determine the economic return and the value of the project.
What does not get factored into this analysis is the cost of the water resources we use, the impact the emissions have on climate and human health, the impact on the land, the impact on the community etc. Our traditional economic analysis does not recognize a cost of using these limited resources or the future impact of consuming them when we evaluate the feasibility of a resource development project.
If these costs were added to the economic analysis would it change the decision on the development of the project? If we also factored these socio/enviromnental costs in would it allow us to make a more informed choices when evaluating projects and their sustainablity?